Who is our economy FOR, anyway?

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Housing Prices

Housing boom defies trends, likely to bust soon — won’t it?
I don’t know how many conversations I have been in recently in which people say that the extremely high prices means that people should buy houses here. Almost everyone seems to believe that real estate prices never go down. So people think that they have to “get in” before prices go “even higher.” Others are dumping their retirement accounts and putting the money into rental units because they aren’t getting very much interest anyway, while housing prices are rising more than 20% a year. (24% a month in places like Reno.) It doesn’t matter that their payments are twice what they could get in rents, because they believe they will be able to sell for a much, much higher price in a year or two.
People are taking out “interest-only adjustable” loans, which means they only pay the interest for the first five years, and then they have to pay both principal AND the probably-much-higher interest rate. But the people getting these kind of loans are doing so precisely because they can’t afford more.
There is only one direction this can go. The only question is when.

Dave,
almost everyone in Australia also believed that house prices were never going to come down until, guess what, they did in the mid-80’s! It also seems that the whole ‘economic boom’ down under ultimately is based on real estate and not much else.

Reminds me vaguely of some of the creative financing during the late 1970s and early 80s in the northern California (back when I was still a teen), where people would get these fairly low payments worked out with a balloon payment that was overwhelmingly large eventually following. Not surprisingly, when the the economy went into recession, a lot of people ended up in foreclosure and housing prices dipped.
When the bubble bursts, it’s going to get ugly for a lot of folks.